I’m an investor with New Atlantic Ventures, where I help launch early-stage companies that have new technologies and new takes on how to win in business. I’m inspired every time entrepreneurs prove there’s a better way to solve big problems, make life better or disrupt comfy clubs. I'm skeptical, however, when start-ups get too trendy or raise too much money before the business is proven. Before becoming an investor, I had a great run building Boston Consulting Group’s Technology, Media, and Telecommunications Practice. Away from work, I ski, mess around in boats, spoil my grandchildren, and tinker with digital toys.

Find Your Low-Friction Customers

In my experience, the biggest challenge a new company faces is boot-strapping from prototype to a substantial business: a business that has multiple customers who are spending millions of dollars, putting what they buy to successful use, and coming back for more. When you get to this point you have proof of the value of your product, a go-to-market approach that you can scale up, customer references, and money coming in. Now you can get in front of investors who will write bigger checks at better valuations, but need to see hard proof that the business is working. Or, in the best case, you can skip the later stage investors altogether and grow the business on organic cash flow.

Willie Sutton: a man with a nose for money. Photo from FBI "Ten Most Wanted" List (via Wikipedia).

Ventures often die when they struggle to do this, and recently I have watched a couple of my portfolio companies breakthrough to substantial business status and brighten their prospects dramatically, not to mention the morale of everyone involved.

Often the key to success here is finding the customer who will buy fast and on a decent scale, what I call the “low-friction customer”. Hallmarks of the low-friction customer:

• Your value proposition is very clear and compelling to them, which often means that they have a big pain point you can help remove, or a big opportunity you can help grasp

• They are able to execute: put your product to good use, fit you into their systems, get the organization behind it, and muster the skills, budget, and sense of urgency that will make the program succeed.

• And, they can make a decision. Your champion is strong and has access to budget. S/he is not beset by too many professional critics whose blessing (or at least silence) has to be won. There is strong urgency and/or a high level mandate to move ahead.

The points above apply best to an enterprise sale. There are analogous issues in consumer-facing businesses, however: finding customers who will engage and return, monetizing those customers, and working out a customer acquisition model that scales and pays back fast.

This seems straightforward, however, in practice it is hard to know from a distance whether a customer is low-friction or not. In a big company there are often people who will get excited about an idea and claim to be movers and shakers. Experience is usually required to tell if they have the clout, execution ability, and resources to get the job done. Clearly a higher title is a better bet, but I have seen situations where CEOs claim to be in love with a proposal, and then pass it down for action to a subordinate who has a narrower agenda. One of my companies is working a partnership deal with a major company whose CEO enthuses about the vision and wants a deal. He passed it down to the manager of the business operating in that market. This guy has concerns about short-term revenue cannibalization, and he is pedaling slowly. The CEO claims to be frustrated, but he does not want to give the BU manager relief from his short-term revenue goals: so far, no results.

So, early stage companies often engage with multiple customers with different profiles to learn who is prepared to act. Some customers have a better fit with the value proposition, some have a bigger ultimate potential, some have higher-level sponsors for the program, and some are more prestigious references.

My point is simple. Early on, engage with them all: to learn, to assess the opportunity, to plant seeds for long term harvesting, and to work out who is ready to buy.

Within 6-12 months, however, work out which one is the best bet for a low-friction customer, and focus your efforts there, even if this is not the customer base you aspire to in the long run. Sometimes the result is a bit surprising; it was for both of the companies I mentioned above.

This can be hard to do. Customer A embodies the original vision of how your company will be successful. Much has been invested, there are good beginnings and strong relationships, but things are going slow. Customer B is less prestigious, and focus on B requires some retooling of the offer and the business model. It can be hard to take attention away from Customer A. At some point, however, you have to make the pragmatic decision: go where the money is. The man pictured above, Willie Sutton, was a notorious bank robber, who, when asked why he robbed banks, famously answered: “because that’s where the money money is”.

If there is no low-friction customer, then it’s a harder problem. You need to question the strategy at a fundamental level: can you last long enough to crack the customers you see? Do you need to pivot now, while you still have runway?

The overwhelming priority must be to get the business rolling. Once you gain more experience, financial resources, and credibility, you can come back and hunt the elephants will long sales cycles. As one of my partners puts it: early in the life cycle of a business, you can sell a concept: “sizzle”. Once you engage with the market, you have to show tangible results: “steak”. Steak builds muscle in the business, and then you can take anything on.

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